It was a normal Tuesday morning in Andheri, Mumbai on August 12, 1997. A man stepped out of the Jiteshwar Mahadev temple, a place he visited twice a day whenever he was in the city. He had even paid for the renovations of that temple a few years ago. He was an ordinary looking person, wearing a white t-shirt and trousers.
Few moments later 16 bullets were pumped into this man and this man was none other than owner of T series, Gulshan Kumar. The reason for the hit? Mr. Kumar refused to pay 10 crore rupees of extortion money to Underworld Don Abu Salem.
Just a few days before on 31st July 1997 a film director Rajiv Rai was also attacked but he survived. Few years later, another film director, Rakesh Roshan was also shot, he too survived.
All of these were for extortion money, but not only for that they also wanted to cast certain people, wanted musical rights or distribution rights. The connection between the Underworld and Bollywood goes to the roots. This is why I am writing this blog as a third part for my money laundering series.
The Original Sin
The origin of mafias in Mumbai predates the independence of India, back in the day when the city was called Bombay. On August 1, 1939, the Indian National Congress provincial government led by Premier B. G. Kher enacted an urban liquor ban across the city of Bombay and its suburbs. However, it was short-lived. In November 1939, the Congress ministry resigned to protest the British decision to involve India in World War II without consulting Indian leaders. Shortly thereafter, British colonial administrators suspended the rigid ban to recover critical wartime excise revenues. It seems nobody cared to read up on how the US liquor prohibition failed completely between 1920 and 1933 before being eventually revoked.
Following Indian independence, the Congress party returned to power, and the Bombay Legislative Assembly passed the Bombay Prohibition Act of 1949 (now the Maharashtra Prohibition Act). The Act prohibited the manufacture, purchase, transport, possession, and consumption of all intoxicating liquor, country spirits, and toddy across Bombay State. However later, step by step they relaxed these rules and without removing the act they effectively neutralised it. But by then the genie was out of the bottle.
To supply the city, criminals set up hidden distillation units inside Mumbai’s slums (like Dharavi) and coastal mangrove forests. Since formal bars were closed, illicit speakeasies emerged across the city. These were locally called “Auntie Bars” because they were frequently operated out of residential rooms by women to minimize police suspicion. Small-time neighbourhood thugs transitioned into organized bootleggers.
Enter Varadarajan Mudaliar aka Varda Bhai. He started as a porter at the Mumbai docks but quickly realized fortunes could be made by stealing and smuggling imported liquor off cargo ships and running massive illicit brewing operations in Central Mumbai. As the operations scaled, syndicates formalized more players came into the ring. Haji Mastan and Yusuf Patel specialized in large-scale smuggling along the Mumbai coastline. While they primarily smuggled gold and electronics, the smuggling routes, corrupt landing spots (ghats), and dockside networks were heavily sustained and funded by the illegal liquor trade. Karim Lala led the Pathan gang, focusing on illegal debt recovery, extortion, and contract killings.
These gangsters used to be respectful to each other and avoid confrontation in business. They had a gentlemen’s agreement among themselves. That is why, there was not much of gang war in the decades of 50s, 60s and 70s. When nephews of Karim Lala inherited Pathan gang from him, they introduced gun culture in underworld. But it was Dawood Ibrahim and his D company which took it to contract killers, advanced weapons and ruthlessly rose to the top by thrashing earlier “gentlemen agreements”, even expanded his business to Dubai. Abu Salem was also part of the D company.
Marriage of Convenience
Filmmaking was officially granted ‘Industry Status’ in India in the year 1998. Following the 1998 declaration, the Reserve Bank of India (RBI) established guidelines in 2001 enabling commercial banks to formally finance film production. Before 1998, Indian filmmakers could not secure standard corporate or bank loans to fund movies. This left producers heavily reliant on private moneylenders and, notoriously during the 1980s and 1990s, the underworld or mafia for funding. However, it was Haji Mastan who took this opportunity first. He even cultivated close friendships with top stars like Dilip Kumar and Raj Kapoor.
It was a co-dependent relationship. Mobsters used movies to launder their black money and to satisfy their fascination with movie stars. In return, struggling producers got the funds they needed, though this relationship always left the underworld in control.
In 1995, Salem met struggling actress Monica Bedi. She claimed to initially believe he was a Pakistani businessman named “Arsalan Ali.” She leveraged this relationship to escape a toxic producer and gain roles in films like Jodi No.1, allegedly secured through Salem’s violent threats to producers. Actor Sanjay Dutt was convicted for possession of weapons which were linked to Mumbai blast masterminds, even it was said that the car which carried blast material was parked in his home few days before it. Though Mr. Dutt claimed he acquired them for his family’s safety during the riots.
Mumbai Police arrested producer Nazim Rizvi and financier/diamond merchant Bharat Shah in January 2001 after intercepting phone calls linking Rizvi to D-Company mobster Chhota Shakeel involving the film Chori Chori Chupke Chupke. During the trial, 13 out of 14 major Bollywood celebrities called as witnesses (including Shah Rukh Khan and Salman Khan) flipped their statements in court out of fear. Only Preity Zinta testified against the mob.
You must be thinking huh! Informal industry was the main problem. After liquor prohibition was gone, they moved to other things to smuggle, but after 1991 LPG (Liberalisation, Privatisation and Globalisation), things might have cut down, you must have heard about police encounters (Bollywood made a lot of movies about it). So, Gangster problem might have been gone and with them dirty money too? Right?
Actually no. It is true with opening up of the economy a lot of illegal smuggling is gone but a few are still left, like gold (As depending upon the situation Indian government increase or decrease custom duty on it). But surely a lot of clean up did happen. A lot of gangsters fled, struggled financially in old businesses moved to something new or just died. But the dirty money problem is far from over for Bollywood.
Bullets to Balance Sheets
With the dawn of the 21st Century, things have changed in Bollywood. Corporatisation happened. Independent directors, small producers are still involved with some gangsters but big money is doing something else, far more sophisticated.
I have a question for you; did you watch any of these movies below?
Ganapath (Budget: 190 Cr, India Box Office: 13 Cr)
Bade Miyan Chote Miyan (Budget: 350 Cr, Box Office: ~65-70 Cr)
War 2 (Budget: 400 Cr, Box Office: 202 Cr)
Adipurush (Budget: 700 Cr, Box Office: 288 Cr)
I know most of you didn’t watch them. Don’t worry, I haven’t either. Trailers were enough for me. But it surely begs the question a movie like Adipurush cost ₹700 crore, or Bade Miyan Chote Miyan cost ₹350 crore, why do the visuals and VFX look so cheap? Where did all that money actually go? And such loss-making movies, how the hell producers are surviving?
Another question for you. Do you think only gangsters have need to launder their money? What about corrupt politicians, real estate tycoons, and businessmen? I am sure their money is not white. Many people have skeletons in their closet.
I am not going to delve into jargons, instead with simple relatable examples I will try to explain it to you.
First scenario:
You are a big producer (Just imagine for a second). You earned quite a lot with your box office hit this year. Now you are worried a lot of taxes you have to pay and you refused to do that. Then your accountant came up with a plan “Making a flop movie”. Your accountant came up with a lot of ideas, you accepted all.
First, you set up a shell company in a tax haven. In tax havens usually taxes on income and gains are generally Nil or minimal. Through this shell company, you charge a hefty consultancy fee, which is quietly added to the movie budget.
After that you make fake bills for side actors, writers, crew members and on visual effects. All of this makes the budget huge without any real cost. Furthermore, you pay less to the real people working but show that higher i.e. overbilling and underpayment.
Even you made a deal with the actors to do this, show on paper that they have charged an enormous amount but in reality, they charged much less.
By doing all of these shenanigans, you have successfully made movie budget of 400 crore Rupees whereas the actual cost is 80 cr. With the selling of music rights (Songs and background score), Satellite rights (Right to show in television) and digital rights (Right to show in OTT platforms) you recovered the whole amount and made some more.
The movie turned out to be a big disaster at box office, butt of jokes and meme content. Only able to collect 50 Crore at box office (It is a simplification, not every rupee earned on ticket sales goes to the producers, there is split of income between distributors, Movie theatre owners and the producers). In official documents, this movie makes a loss of 270 crore rupees but in reality, you made a profit of 50-60 crore rupees. This fictitious loss shown on your books is then used to offset the huge profits you made from other successful movies. In short, much less tax to be paid as your profit decreased due to this big loss. Tax evasion and transfer of money to a tax haven which you can use in future as loan to fund your new movie which also helps you to lower your tax on new income from future movies, just in one go.
And if you don’t believe me that all of this happens then for your information, in 2013, a raid on Ekta Kapoor’s Balaji Telefilms found payments made to entirely fictional writers and crew members, fake people with real bills.
Second Scenario:
This time imagine yourself as a businessman. You have a lot of black money; you fear tax raids and not able to spend your hard-earned black money (Here you can also imagine yourself as corrupt politician or Real estate Mogul or anything else). If you read my previous article what I am going to state now, will be much easier to understand so please read that.
You set up a shell company in a tax haven. Through that you produce a movie. In return, you get the distribution rights. But investment in movie comes as an ad-hoc loan, or fake loan from other sources but you get real rights in your official name. Now no matter how good or bad this movie does in domestic market, you can always get inflated numbers for the overseas, in result get your money back as return in investment due to good performance in overseas market. Hurray! Job done. Black money successfully turned into White.
If you don’t believe me then believe the Income tax department. Mythri Movie (Malayalam movie but same story in Bollywood ) makers were raided for receiving ₹700 crores via hawala channels. Untaxed money (black money) is introduced into the production company disguised as “ad-hoc loans” under bogus names, or routed through hawala networks. In a 2012 Cobrapost sting, prominent figures like producer Vashu Bhagnani and director Anubhav Sinha were caught on hidden camera casually explaining how they accept black money to fund films.
2016 and 2021 global leaks revealed that major stars like Amitabh Bachchan, Ajay Devgn, Aishwarya Rai, and Jackie Shroff held offshore shell companies and trust funds linked to Swiss banks, though investigations often hit dead ends due to tax haven secrecy laws.
The Real Victims
The ultimate tragedy highlighted in this series is who pays the price. In the 1990s, the victims were producers and directors losing their lives. Today, the victims are the working-class members of the film industry. While producers use inflated budgets to launder money and actors take massive upfront fees to help inflate those numbers on paper, the actual light men, stunt coordinators, and editors are often left unpaid when the production house inevitably declares bankruptcy or a massive loss (as seen recently with Pooja Entertainment).
Conclusion
The next time you see a ₹300-crore cinematic disaster unfold on screen, remember: you might be watching a terrible movie, but you are witnessing a brilliant financial transaction. It is a possibility that your favourite movie also did this and your favourite movie star too.
Please read my previous blogs for deeper understanding.
Do you think only movies and stock market do this? What about religious institutions? Do they….?
See you next time. Till then Bye!
